Commentary on Economics, Information and Human Action

Will there be a next Fred Kahn?

Adam Thierer has a lovely post that’s a good tribute to Fred Kahn, the legendary regulatory economist who, among other things, did the politically unthinkable: he recommended the closure of the agency of which he was head at the time (Civil Aeronautics Board), thus ushering in airline deregulation in the late 1970s. His research, teaching, policy work, all were outstanding. Do go read his post.

From Adam’s post, a couple of quotes from Kahn that illustrate why we sure could use another Fred Kahn (or several).

Remarks before the American Bar Association, New York, August 8, 1978:

I believe that one substantive regulatory principle on which we can all agree is the principle of minimizing coercion: that when the government presumes to interfere with peoples’ freedom of action, it should bear a heavy burden of proof that the restriction is genuinely necessary…

Remarks before the American Bar Association, Dallas, TX, August 15, 1979:

I think it unquestionable that there is a basic difference between the regulatory mentality and the philosophical approach of relying on the competitive market to restrain people. The regulator has a very high propensity to meddle; the advocate of competition, to keep his hands off. The regulator prefers order; competition is disorderly. The regulator prefers predictability and reliability; competition has the virtue as well as the defect that its results are unpredictable. Indeed, it is precisely because of the inability of any individual, cartel or government agency to predict tomorrow’s technology or market opportunities that we have a general preference for leaving the outcome to the decentralized market process, in which the probing of these opportunities is left to diffused private profit-seeking. The regulator prefers instead to rely on selected chosen instruments, whom he offers protection from competition in exchange for the obligation to serve, as well as, often, transferring income from one group of customers to another — that is, using the sheltered, monopoly profits from the lucrative part of the business to subsidize the provision of service to other, worthy groups of customers. No matter that the social obligations are often ill-defined, and sometimes not defined or enforced at all; the protectionist bias of regulation is unmistakable.

3 thoughts on “Will there be a next Fred Kahn?”

The sad thing is that liberal Democrats were ready to listen to Fred. Under their sponsorship not only was the CAB shut down, but the ICC was shut down and the railroads were deregulated. This lead to a tremendous boom in railroading and to the US having the best and most productive railroad system in the world.

Now, the Democrats claim that deregulation is something that only an evil republican would think of.

Eric, your comment raises a good point (as usual). Truly pro-market and pro-competition arguments don’t often come from industry (think Enron), so they get dismissed as some pro-business means of subverting competition or markets. So there’s a sense in which the decentralized approach of having various parties make the pro-competition argument faces a lemons problem. Is it true that one of Kahn’s biggest arrows of credibility in his quiver was precisely that he was advocating policies that seemed to contravert his narrowly-construed interest?